Private credit expands at faster pace in September

• Robust Rs.88bn growth in private credit underlines faster rebound in economic activities 
• Sept. marks second highest month for private credit after Rs.120bn in March
• Govt. borrowings from banks hit Rs.199bn in Sept. 
• Improving health of SOEs leads to net bank credit to contract by Rs.4.7bn  

Sri Lanka’s private sector credit, a key measurement of economic activities, expanded at a faster pace in September than a month before, continuing a momentum set forth in August as both individuals and businesses borrowed to sustain their consumption and 
future growth. 

Banks gave Rs.87.4 billion in total private sector credit on a net basis during September, the second highest monthly figure after Rs.120 billion credit expended in March, ahead of country-wide lockdowns imposed to contain the virus’ spread. 

The banks in August gave out Rs.78.3 billion in credit to the private sector on a net basis, marking it the first month to record a positive growth after the virus slowed down the pace of credit.  

The net growth in credit of such magnitude underlines many more billions worth of credit disbursed to the private borrowers during the month as gross credit disbursements get netted off against debt settlements. 

Sri Lanka’s economy got off to a robust recovery path since June after virus related restrictions ended in May and the gross loan disbursements hit a pre-pandemic level record in July as banks churned out more loans to businesses and self-employed affected by the disruptions caused by the virus. 

While the new round of lockdowns that began early October may have softened the momentum a bit, economic analysts opined that it might not necessarily have the same recessionary impact on the economy as it did during April and May.

Monetary Board on October 22 left its key policy rates unchanged as the rate setting committee saw more room for the current dovish monetary policy to run its course. 

Meanwhile, the government borrowed Rs.199.1 billion during September, compared to Rs.47.2 billion in August. 
The government has been explicit that it would skew its borrowing mix to domestic sources more going forward due to both favourable rates and relative challenges in accessing the international bond markets in the near term. 

Meanwhile, the State-owned enterprises settled Rs.4.7 billion of their loans on a net basis in September from Rs.40.3 billion they borrowed from the banking system in August, in an indication of their improving financial health with the rebound in the economy. 

The robust private sector credit and the large government borrowings by the banking sector accelerated the money circulation in the economy as measured by the broad money supply or M2b, which rose by 19.2 percent in September from a year ago, accelerating from 17.5 percent in August.